Remember, service charges do not receive the same tax treatment as tips. Service charges are non-tip wages, and employers must treat them as such for tax withholding and filing requirements. Tips are payments made to employees by customers at the customer’s discretion. Service charges are extra fees a customer must pay to a business. Examples of service charges are fees imposed by restaurants for parties of six or more, cruise ship package fees, and hotel room service charges.

CIRCULAR 230 NOTIFICATION: We are required by IRS Circular 230 to inform you that, unless otherwise expressly indicated, any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purposes of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.